One of the most powerful benefits of filing for Bankruptcy is the automatic stay. The automatic stay is like pressing a button that simply stops creditors dead in their tracks. At the very moment a voluntary Bankruptcy case is filed under any Chapter of the United States Bankruptcy Code the automatic stay goes into effect and most creditors CANNOT take any further action against you without permission of the Bankruptcy Court.
The automatic stay is feature of Bankruptcy that acts as an injunction which immediately halts lawsuits, foreclosures, garnishments and all collection activity against the debtor from the date and moment a bankruptcy petition is filed and extends to all judicial and extrajudicial collection efforts against the debtor and their property. The automatic stay is a federal law under 11 U.S.C. § 362 that prohibits all collection activities of creditors and provides a period of time in which all legal actions against the Debtor, which include judgments, turnovers, and repossession of property are stayed or suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition.
In reorganization cases under Chapters 11, 12, and 13 the stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation and reorganize their finances. In the case of individual debt adjustment the breathing spell gives a debtor the time to propose a repayment plan. Under specific circumstances, secured creditors can obtain an order from the court granting relief from the automatic stay.
In Chapter 7 Bankruptcy cases the automatic stay protects a debtor’s exempt property and gives the Chapter 7 Trustee the opportunity to assess what assets are available for the estate and in the debtors’ possession without interference from creditors. The trustee and debtor may require property to be returned to the debtor or recovered by the trustee from creditors under certain circumstances.
The stay prohibits any act whatsoever to collect or obtain money or other property from a debtor. Whether it involves real estate, a vehicle, or personal property from a debtor, all collection actions must cease. Creditors may not take any action to contact a debtor for any reason. All phone calls, collection letters, lawsuits, foreclosures, and repossession efforts must cease and all future contact regarding debt or debt related matters must be only through the debtor’s attorney. Any creditor or those acting at the creditor’s request that know of the stay and blatantly ignore or disregard it may be held in contempt of court and subject to fines and prosecution. Any property seized from a debtor such as personal property, repossessed autos, tools, machinery, equipment, money in bank accounts as well as any other items must be returned.
The filing of a Bankruptcy petition, however, does not operate as a stay for certain types of actions, and under The New Bankruptcy Law, the stay is not always as automatic as it used to be. Alimony, maintenance, and child support obligations are not subject to the provisions of the automatic stay. Chapters 11, 12, and 13 discharges are contingent on full payment of any and all such obligations. Criminal proceedings, certain landlord-tenant actions, and some IRS actions are also not subject to the automatic stay.
The automatic stay will not stop criminal prosecutions against debtors who have violated a criminal or motor vehicle law. The automatic stay does not affect any proceedings to require or enforce the payment of child support, alimony or other types of divorce proceedings with the exception of proceedings to determine property division on property acquired during a marriage (equitable distribution) may require the permission of the Bankruptcy Court.
The automatic stay does stop foreclosures and sheriff’s sales that may otherwise result in the loss of a debtor’s home or other personal property. As for foreclosure under the new bankruptcy law, the automatic stay will not apply if a debtor has filed a prior Bankruptcy case within the previous 2 years and the Bankruptcy Court in that case allowed the lender to move forward with the foreclosure. A debtor cannot stay a foreclosure by the filing of serial Bankruptcies.
Besides the Changes to The New Bankruptcy Law the automatic stay does have limitations as creditors may file a motion with the Bankruptcy Court to obtain permission to proceed with lawsuits or to recover money and even take property from the debtor or trustee. This type of procedure is called obtaining relief from the automatic stay. This is done in the form of a Motion for Relief From Stay filed in the Bankruptcy Court. They are other occasions when a Motion for Relief From Stay can be filed by a creditor depending upon the particular facts and circumstances involved in a case.
If a creditor filed a Motion for Relief From Stay in a previous Bankruptcy case of a debtor during the previous year, the Bankruptcy Court will presume that the debtor file the instant case in bad faith. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has provisions for serial bankruptcy filers. Under the new bankruptcy law, multiple or serial Bankruptcy filers have a burden of proving that their case was filed in good faith as the automatic stay terminates after 30 days unless the debtor, the trustee, the creditor, or the U.S. Trustee requests the stay to continue and proves that the instant or current case was in fact filed in good faith. A debtor who has filed more than 2 Bankruptcy cases during the previous year must seek a Bankruptcy Court order to receive any stay relief.
If you have questions about The Automatic Stay please contact The Law Offices of R.J.Atkinson,LLC at 800-436-9056 for a free initial consultation to discuss how The Automatic Stay might help you. We can help you to understand your Bankruptcy & Debt Relief options. With locations in Houston, San Antonio, Austin, and Dallas we are a Texas Debt Relief Agency and help people file for Bankruptcy under the Bankruptcy Code. Can You Imagine Your Life With Less Debt?